Money in the bank is not a good investment. I suppose one could call it an investment, but it is rather saving than investment.
As I have explained in my posts about the World in Aug 2011, when Nixon declared the US$ an unbacked currency and severed the ties to the gold standard, it was like giving governments a blank cheque book with full signing power! The result of that act is an amazing pile of debt world wide that is threatening to devour us. Or, as Proverbs says, the borrower is the slave to the lender.
The real world effect of this debt is that the citizens became the slaves. Citizens are taxed to just pay interest on debt. Repaying the debt has long ago become a forgotten goal! And as I also said earlier, the only way to sort of keep the wolf from the door, is to have controlled inflation. And inflation means that the purchasing power of my money is eroded. I see it every time I walk into the supermarket! Everyday I can buy less with R100 than the day before. That’s inflation at work. We get a salary increase to counter inflation. Good news for the government – they can tax me more. But the supermarket staff now also earn more, so the owner has to increase the prices to keep his profit level. So up goes the prices and now I earn 10% more, but I can buy 15% less than before. That is inflation.
Let’s look at it another way. Suppose we had unlimited cash available, what would happen to prices? It would sky rocket. In Economy it is the principle of supply and demand. So prices will stabilise at a balancing point where cash and supply is more or less in equilibrium! That is inflation. That is what happens when governments keep on printing paper money.
And that is why cash in the bank is not such a good idea to invest.
The question then, is how do I protect my money or my wealth?
That is where gold enters. Gold has a use in jewellery (as all men know who know a lady) and also in high end electronics. But ever since Adam walked the earth, gold (and silver) was also used as currency. Gold does not rust or deteriorate. An ounce of gold 1000 years ago is still an ounce of gold today. Or, to use Zimbabwe with its super inflation as an example, and ounce of gold before Mugabe became president will still be an ounce of gold when he dies! Unfortunately it is not the case with the Zimbabwean Dollar. Which is virtually worthless.
But, if you had that ounce of gold before Mugabe, and you still had it today, in cash terms it would be worth much more than before Mugabe. As the value of paper money depreciates, so the cash value of gold increases! And today you should be able to buy more or less the same with the ounce of gold.
Also keep the following in mind: if you had a container load of Zim$, who would it exchange it for you? I use the Zim$ as an example, but it has happened to other currencies too! There are even people who think it will happen to the US$! So we rather keep gold!
Also, I can exchange gold anywhere in the world. And a small piece of gold jewellery can be a good asset if I have to move to another country.
And all of the above explains why the gold price is so high. (And a good argument to buy more gold jewellery!)